(Adds quotes from Canada and Mexican negotiators)
WASHINGTON, Oct 17 (Reuters) - Trade negotiators from the United States and Canada accused each other of sabotaging attempts to renegotiate the North American Free Trade Agreement on Tuesday, even as they and Mexico agreed to extend talks into 2018.
A round of talks in Washington that lasted seven days failed to find the most basic common ground between the three parties, and Canadian Foreign Minister Chrystia Freeland accused the United States of pursuing a "winner take all" approach.
The Trump administration's proposals to reshape NAFTA to help shrink U.S. trade deficits have created stumbling blocks, leaving observers to wonder whether it intends to sink the agreement.
Washington's demands, previously identified as red lines by its neighbors, include forcing renegotiating the pact every five years, reserving the lion's share of automotive manufacturing for the United States and making it easier to pursue import barriers against some Canadian and Mexican goods.
"As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits," said Washington's negotiator, Robert Lighthizer.
News of the talks' extension through to the first quarter of next year, from the end of this year, lifted the Mexican peso 1.2 percent after a volatile day of trading. The peso has fallen 7 percent since July on expectations that NAFTA would not survive.
Mexican Economy Minister Ildefonso Guajardo struck a more positive tone than both Freeland and Lighthizer, saying the extension of the talks showed the three parties were "giving ourselves an opportunity to find a solution".
Despite the tension at the talks, Mexican and Canadian officials have stressed that their governments will not walk away from the table. The talks are now scheduled to resume in Mexcio City on Nov. 17-21.
Describing some of the demands as "ridiculously extreme," Moises Kalach, head of the international negotiating arm of Mexico's powerful CCE business lobby, said the U.S. government knew that it would not be able to push them through.
"The key is to remain calm and see if the American government is ready to negotiate," he told Mexican radio.
One person close to the process said there was now a possibility that negotiations to modernize NAFTA, which underpins some $1.2 trillion in annual trade between the three countries, could collapse.
Lighthizer says his hard negotiating line reflects U.S. President Donald Trump's desire to claw back lost manufacturing jobs and shrink U.S. goods trade deficits amounting to $64 billion with Mexico and $11 billion with Canada last year.
Trump, who made trade a centerpiece of his 2016 presidential campaign as he promised to reinvigorate the U.S. manufacturing sector, has continued his attacks on NAFTA and repeatedly threatened to terminate the pact if Mexico and Canada will not agree to changes.
U.S. negotiators opened a new front over the weekend with a proposal that Canada dismantle its system of protections for the dairy and poultry sectors, a move that Ottawa will reject.
The Trump administration has also set out proposals that could impose fresh restrictions on long-haul trucking from Mexico, according to a person familiar with the matter. That too is likely to meet stiff resistance, Mexican officials say.
U.S. opposition to NAFTA's dispute resolution mechanisms, plans to restrict outside access to government contracts and attacks on Canadian dairy and softwood lumber producers are all causing friction behind the scenes, officials say.
In public, Mexican and Canadian officials have played up progress in areas of greater consensus such as telecommunications, financial services and digital trade.
Canadian and Mexican officials are loosely allied with U.S. industry, farm and services lobbying groups that oppose the Trump proposals and are stepping up their efforts to persuade administration officials to ease them. (Additional reporting by Dave Graham in Arlington and Sharay Angulo in Mexico City; Editing by Paul Simao, Leslie Adler and Jonathan Oatis)